The number one reason:
Simplicity – Index funds have outperformed almost every single fund out there year after year. Plus, they are the epitome of diversification. You can’t get more diversified then these funds.
As with everything there are a bunch of indices to choose from. I’ll be talking about the most popular ones. But you can do more research on the fund that fits best for your tastes.
The Trader Chicks Morsels of Recommendations – ETF’s are the best way to go. Remember mutual fund managers, even with index funds, always think of their paycheck first, which means larger expense ratios and fees.
Another thing to remember when investing in Index funds – these are for the long haul. You don’t want to be checking them every few days, weeks or even months. You always want to get in on the best price possible. But once you’re in, let it go!
What is Index Investing?
Basically an index fund keeps track of different portions of the stock market.
Examples of Indices
S&P 500 – the Standard and Poors index is the top 500 stocks being traded
Dow Jones – top 30 blue chip companies and also the oldest index fund
Nasdaq – Technology stocks
Russell 2000 – Index keeping track of 2000 small cap companies
Wilshire 5000 – These are pretty much all the US stocks being traded
How to Invest in Index Funds?
There are three ways to buy into these indexes.
1. Pay the exuberant price for the actual index tracking. I’m not even sure if anyone at all does that.
2. ETF – which is an exchange traded fund for each of these. They are the most affordable, with the least expense ratio. They are traded exactly like stocks, meaning you can buy or sell them whenever you want. You do have to pay commission on each buy/sell.
3. Mutual Fund – I am not at all a fan of mutual funds. Even when it comes to index mutual funds. You can do just as well with ETF’s with a less expense ratio and there is no time frame. With mutual funds you normally have to wait for them to expire before getting out of it.
Why to Invest in Index Funds?
Investing in Index funds is considered passive investing. Meaning, you buy it and leave it.
Year after year after year the indexes have been outperforming almost all mutual funds that exist – not counting the index funds.
This way you get a stake of all your top choice companies and if one goes down, another one usually goes up.
Index fund investing is considered to be safe with little risk.
Even when it crashed, as long as you didn’t panic and sell off everything, it has flown off the charts – once again.
Trader Chick’s Sterling Recommendation – Every portfolio should have a portion of it invested in Index funds.
Marina 'The Trader Chick' Villatoro